Going from retail broker to prop firm

Discussion in 'Prop Firms' started by vikingtrader, Feb 6, 2011.

  1. Hi all, first post here on ET forum:)

    I`m currently looking for a new broker to trade stocks with and like many others i`m still under the PDT rule. Right now i`m using Zecco & Thinkorswim and even with two different brokers i still find it very hard to make my trading strategy work with this rule. So i read on some other board about a guy who switched from his retail broker to a prop firm instead, namely Broad Street trading and he also recommended to open an account with them in order to get around the PDT rule.
    I was totally new to prop firms before reading this and after doing some research on the subject i understand that you can actually open a trading account with as little as $5k and NOT have to worry about the PDT rule.

    So this brings some more questions that i hope anyone here can help me answer.

    1. Can anyone just open an account with a prop firm or does it come with some sort of a test to show them just how experienced you are with trading? The reason i ask this is because if anyone could just switch from retail to prop it would be to simple avoiding the PDT rule, so where`s the catch & what expectations will there be on me as a trader?

    2. When you trade with a prop firm, can you simply trade with the capitial that you initally deposited when you opened the account and never use the leverage they offer? Or does it come with a expectation that u use leverage in order to take larger positions?

    3. Do the prop firm monitor my trades and will other traders be able to see my trades/positions?

    4. Will my captial be locked up for a certain time if trading prop? I think i read somewhere that someone complained that his capital was locked up for a year and he couldn`t touch it until then. Does this go for all prop firms or just some?

    5. Do the prop educate their new traders/customers for free or does this come as a extra cost if i want that?

    Would appreciate it very much if anyone could help me answer these questions.
  2. Roark


    With most prop firms, anyone with the ability to pay the prop firm's upfront fee requirements can join. The prop firm makes money from you; the traders almost never make money.

    The catch is that the prop firm rapes you for training fees and takes a deposit, and then when you lose money, they fire you.

    Most prop firms REQUIRE you to take and pay for their training. That's an important source of revenue for prop firms.

    If you want to day trade, why don't you trade futures? For trading futures, there are no regulations pertaining to PDT.
  3. Roark is right, futures is the way to go, no need to go prop and deal with their money leaching antics.

    I been trading futures (over 3 yrs now) and will never go back to stocks.
  4. johnnyzee

    johnnyzee Guest

    There tonnes of new regulation coming to the financial markets. Stocks are same as futures. Only reason traders daytrade futures with stock you have pattern daytrading rule which apparently is 'uniuque' occurs in US markets. No other market that i know has this rule PDT. In canada Toronto Stock Exchange TSE, there is no patter daytrading rule for stocks as with many exchanges in the world.

    As for prop firms asking traders for $5000 or $3000 to daytrade, it's under SEC investigation as they are not 'true propm models'

    In true prop models, the trader doesn't deposit any money to the firm. The traders is not a customer in prop firm but a partner or owner of the firm..

  5. Ok, so the prop firms generally wants you to take their classes & programs but still, it must be a free choise right? I can`t imagine they will force you to take the classes just to stay along in the firm?

    As for taking a deposit from traders is not something i like the thought of but do all props really do this? I heard Broad Street is not taking any deposit from traders.

    The one thing they will make most money of is probably the fees for using their software, i looked up Broad Street for example and they have a $250 monthly fee for using their trading software. That`s quite expensive in my opinion but of course you get some advantages like routing orders.

    I`m not familiar with trading futures at all so i will focus on stocks for now. This rule (Pattern day trader) must be very unique because i haven`t heard of anything similar in Europe for example where i live.
  6. LeeD


    Some will make you take classes as a prerequisite of joining as it's the main source of revenue for the firm.

    Firms that don't require a deposit are few and have strong tendency to hire people with a strong record of success at trading.

    Take time to read this thread. It will explain most things you want to know.
  7. If the firm charges you for training and then gives you capital, then it's the same as taking a "deposit", but masked as "training". Not all firms require training or charge for it, however training is beneficial depending on your experience level. Usually, the training fees and capital contributions are separate. You're most likely going to pay your dues one way or another, either through proper training or first losing it to the markets before you establish a proper strategy which matches your personality and style.

    Fees for software and/or data from the exchanges will run around $200-$300/month, and given the "one year lock-up" for most registered prop firms (as per SEC rule 15c3-1), you will incur that drawdown regardless if you place a trade or not.
  8. LeeD


    Out of curiosity, what capital did you join with? Or did you start trading at a bank/hedge fund?
  9. Regarding prop, I paid for training, and then traded through a pop on their dime. Thinking I was ready to do it on my own, I started with 5k for my own prop account, which I soon learned is simply not enough when starting out with limited experience, especially for daytrading as the fees and drawdowns will wipe you out within months. However, it vastly improved trading in my retail account, where I did not have to liquidate positions and had plenty of capital to withstand a drawdown if necessary.

    It's the access to capital AFTER you have developed a solid game plan for daytrading is when one will reap the most benefits by joining a prop. That could take a few months, or a few years, depending on one's learning curve. There is an excellent thread by "lescor" regarding this.


    Until then, one can expect to "blow up" their 5k account at a prop firm through commissions, drawdowns and fees until they eventually figure it out.
    #10     Feb 7, 2011